Law firm profit survey: revenue outlook

The revenue performance of the country’s largest law firms and their outlook for growth provide a unique insight into the health of the deal economy, given their lawyers are intricately involved in transactions across the capital markets. Law firm leaders told Financial Review DealBook that energy and resources, infrastructure and advice relating to disputes would be the key drivers of revenue for the rest of this financial year, along with work tied to Asia.

ALLENS ARTHUR ROBINSON

Chief executive partner Michael Rose

What drove overall revenue in 2010-11?

John Carrington
AFR

“We were very happy with last year’s result. We saw strong growth across the firm, including in Asia. It is fair to say we saw particular strength in those practices that most clearly faced the top speed of the Australian economy – so our resources, energy, projects and infrastructure practices. But we also saw renewed activity in M&A and we saw continued strong activity in relation to insolvency and reconstruction-type work.

“It continued to build throughout the financial year and the last quarter in particular was a very strong quarter, and that has continued in the first two months of the new financial year."

What will drive overall revenue in 2011-12?

“There are currently three big floating LNG platform jobs in the world and we are acting in respect of all of them. That’s big Asian work. Some of the investment flows into Asia that slowed during the GFC have really come back to life. We are acting on some big energy projects in Vietnam, for example – power stations and refineries. We have a strong oil and gas practice, starting at the North West Shelf and across Indonesia, PNG and Queensland. We have done a lot of work for clients active in that space."

Company Profile

“It was a good year for us and we’re building on momentum which has been gathering for the past couple of years. We were, not surprisingly, strong in the resource states – Perth and Brisbane – and across all sectors in those particular markets. We also have a strong energy and resources practice on the eastern seaboard below Brisbane – so Sydney and Melbourne, and of course Adelaide. Litigation was very, very strong. IPC [intellectual property and competition], employment, banking and insolvency were also strong.

John Denton
AFR

“If there was an area that was softer, or perhaps less predictable in the year, it would have been corporate, which was just a little bit flatter in the main markets, and by that I am excluding Perth and Brisbane, where corporate activity was solid."

What will drive overall revenue in 2011-12?

“It has been a very pleasing start, I have to say. Our revenue for the first two months is up about 14 per cent on where it was this time last year, which is stronger than we have budgeted for. We are seeing good work-flows across the firm and the pleasing thing is there is a stronger work-flow in the corporate space. And as you would expect, continued growth in those other areas I have mentioned. So we are feeling very confident about it, without being foolishly so.

“We continue to have a very, very strong regional practice [in the Asia Pacific]. We invested in the region by opening in Singapore and Tokyo during the downturn. Last year, our revenue from our regional offices, excluding PNG, increased by 60 per cent. So we are starting to see the benefit of that, and you can’t measure that benefit just by reference to the on-the-ground level of activity. It is the opportunities which are sourced from having strong relationships in North Asia and South-East Asia."

Gavin Bell
AFR

CLAYTON UTZ

Chief executive partner Darryl McDonough

What drove overall revenue in 2010-11?

“We lost a few partners during 2009-10 [to Allen & Overy], so you are not comparing apples with apples. It was a slightly different firm because of the numbers, so the [revenue] increase in one sense is better than it appears at first blush.

“The common view of a weaker first half of the year compared to the second half is probably pretty valid. Our first quarter was not that strong but our second quarter was very strong, and it made up for everything that we missed out on in the first quarter. Our third quarter appeared to be somewhat weak, but we then powered home at the end. We had growth in particular areas, in some cases double-digit growth – you like to see that.

“Government has gone well. Energy and resources and commercial litigation grew well, as did construction, major projects and environment and planning. I suppose if you stand back from the Australian economy and make an assessment, they are probably the areas where you would expect growth. What is going on in the energy and resources side, and construction and major projects, goes hand in hand with environment and planning because you can’t have a project without having to do the environment and planning work. Litigation is, of course, a reflection of the problems we have in the economy at the present time."

What will drive overall revenue in 2011-12?

“Things are going well. It is too early to make any predictions but I am very comfortable with where we are sitting at the present time. What is happening in the northern hemisphere is obviously a worry for people. More importantly at home, there is a degree of uncertainty in the economy generally about where things are going. Whether we are going to get any clarity for that I am not so sure. My expectation is that we might get an early run down to Christmas. Things usually run down towards Christmas and I think that might start a bit earlier this year and people will want to get away and have a holiday."

CORRS CHAMBERS WESTGARTH

Chief executive John Denton

What drove overall revenue in 2010-11?

“It was a challenging year. For a start, we launched a new strategy [Corrs 2015, launched in September 2010]. Integrating a new strategy into the life of the firm is always a challenge, because there’s a risk you could be distracted from the external focus you need. Fortunately, external focus is one of the main tenets of the strategy.

“We are moving to increase the scale of the firm by at least a third. We are focusing on four critical areas of investment: corporate and finance; energy and resources; projects; and dispute resolution. We are raising our ambition. The market is global and we need to be world class.

“One of the big challenges for all law firms is to manage the micros as well. There are some fundamental shifts happening, and on the micro level there is no doubt there is a war for talent out there. People must be paid properly. The actual salary line at law firms has increased exponentially, and you can either absorb that or use it as a platform for further growth. We are doing the latter."

What will drive overall revenue in 2011-12?

“We think corporate will be softer this year, certainly in the first quarter, probably in the first six months. You can tell because it is hard for deals to form fully and it’s not the same pace as last year.

“Definitely we are finding in projects we are doing very, very well. Disputes, construction and property are very good for us. What we are finding is that because we made a bunch of investments in banking last year, that finance stream is coming through strongly – and of course energy and resources. We had four or five of the biggest LNG projects in the market last year. In M&A we know the area’s going to be tough, but we’re going to continue to invest in it.

“We’re completely on track for our KPIs. We aim for full double-digit growth for the full year. I think the market will divide between firms that can do this, that is legitimate partnerships that can deliver legitimate returns, and those that have to have eight bands, bonuses, etc."

FREEHILLS

Chief executive partner Gavin Bell

What drove overall revenue in 2010-11?

“Revenue increased a little over 7 per cent. We’ve had a good year, which was driven by a couple of factors. The major thing was having the people. We kept our people, so when the upturn came we didn’t have to start recruiting and we were well positioned when things improved. Energy and resources was strong, as was litigation, regulatory work and employment."

What will drive overall revenue in 2011-12?

“We’re cautiously optimistic. There are all sorts of issues in North America and Europe. It’s hard to say what will happen there. But our forward order book of clients seems to be pretty good at the moment, so we’re cautiously optimistic.

“M&A work should continue, subject to the economy. Infrastructure will be stronger in the coming year, particularly in NSW. We have a government now that’s prepared to do things, so that will drive activity. The NBN will have a multiplier effect. Queensland and Western Australia both have a huge energy and resources related spend, on railways, ports, etc.

“Asia will remain strong. We see a continuation of Australian clients looking at Asia, a continuation of Chinese SOEs [state owned enterprises] investing in assets. There will still be a fair amount of work-flow coming that way.

“We are budgeting for an increase in revenue, probably another 5 per cent on last year. The outcome will depend on what happens in the economy in the second half of the year. If the economy went seriously south, revenue would fall off. If the economy falls there’s only so much you can do about it.

“We all trade in the similar market, so I think growth is available. The stronger firms will get more and the weaker firms will get less of the growth."

GADENS

National chairman Ian Clarke

What drove overall revenue in 2010-11?

“Revenue has grown. We’ve had a number of partner acquisitions, especially in Perth. The clients we’re acting for are ASX top 100, with an emphasis on work in their core areas of business.

“We have a focus on three sectors: banking and finance; property and construction; and energy and resources. Last year credit relaxed and we did more front-end lending work for banks. Work is also freeing up in the property and energy and resources sectors.

“In this sort of climate you’ve got to position your business to take advantage of that energy and resources work. The freeing up of credit last year has led to more banking transactions. We work very closely with the banking sector, in areas where they derive a lot of their core revenue. We also work with a lot of good public companies and large private companies – that’s been a very good area for us. Our Sydney office also works closely with our Port Moresby office and PNG has been very busy."

What will drive overall revenue in 2011-12?

“The economy had really picked up a lot in the past 12 months, until a month or two ago. Now there’s a bit of a confidence issue. The outlook for our firm is steady, although I don’t believe this year will be as strong as last year. Activity levels are down. We’ve seen, last year, a return of M&A, IPO and corporate deals, but they’re off the agenda again now.

“We’re sticking to our knitting, and that approach is probably not a bad thing because we’re not dependent on a big M&A deal. It’s going to be pretty competitive this year for work in PNG, I think. We’re seeing not only energy and resources coming into Asia but also agribusiness. ANZ has been a strong client for us in that area.

“But our main market is obviously Australia and I think it’ll be a pretty tough year. We’re not seeing any clarity in the US. I think we’ll all have to work pretty hard this year."

MALLESONS STEPHEN JAQUES

Chief executive partner Robert Milliner

What drove overall revenue in 2010-11?

“We always knew calendar year 2009 was the high point of the financial crisis. The expectation was that by 2010-11 we’d start to see some recovery and a lift in activity. What we did find was that this year still wasn’t as strong across all market segments and geographies as we thought, particularly the second six months [from January]. We were more confident but didn’t see the consistent activity expected in a recovering Australian market. However, the Asia market, which accounted for more than 10 per cent of the firm’s business, was stronger and more consistent. So although there was an improvement over 2009 we did not see consistently the levels of activity across the market we had expected.

“I think we had a good performance in a year where the recovery was slower than expected, with some stand-out performances in certain practice areas and offices. We’re very clear about the strategic direction the firm is taking and we’re confident of the plans we are implementing to drive future growth. Our succession planning of a new leadership team for the firm has gone very smoothly. The combination of the firm’s strategic direction and the new leadership group all give the firm a lot of confidence to take advantage of future growth."

What will drive overall revenue in 2011-12?

“We are cautiously optimistic about improving conditions in the Australia-Asian market, but we also have to temper that in context of an uncertain global market. The Australian market seems solid but it is not immune to global volatility. We’re budgeting for some revenue growth. We continue to see Asia as a growth driver. Looking into the next 12 months the areas for growth include energy and resources; infrastructure, where there is significant pent-up demand; new funding products; market regulation, particularly in new policy areas such as tax and carbon pricing; telecommunications; and international arbitration."

MINTER ELLISON

Chief executive partner John Weber

What drove overall revenue in 2010-11?

“There was a strong contribution from out international activities, both from our offices offshore and from in-bound work. It was a very strong year in corporate, finance, construction and infrastructure. We certainly had a very good year in Queensland and Victoria, and a very strong year in infrastructure in NSW. Overall, it was an exceptionally good year."

What will drive overall revenue in 2011-12?

“We’ll continue to see strong contributions both from our offshore operations and revenue from clients based offshore, principally for work related to in-bound investment from China. We have a very strong business in Hong Kong.

“While we might see a minor reduction in revenue [following a restructure in Perth], the underlying profitability of the business will improve. Because there is a more efficient use of the infrastructure that runs the financially integrated business, the relative operating cost per fee-earner or per dollar of revenue goes down. We’ll get a significantly better integration of in-bound business opportunities and work-sharing through an integrated office. Our focus will be on higher end work and that will benefit the whole business.

“The new office will have a more specialised offering. Its focus will be in corporate, M&A and particularly energy and resources, with some finance, dispute resolution and restructuring, and real estate and projects capability."

NORTON ROSE

Global deputy chief executive Don Boyd

What drove overall revenue in 2010-11?

“All of the areas were up about [9.7 per cent] with the exception of employment and environment and planning. There were personnel reasons in relation to those; Wayne Spanner being elevated to managing partner – he was an employment lawyer – and in environment and planning we had retirements or semi-retirements of key partners.

“Everything else was relatively strong. The main areas were restructuring, corporate, infrastructure and construction and engineering. They were consistently up from the prior year. Those were the areas we were really trying to build ourselves out on. And there were relatively sound results from areas like real estate, which you wouldn’t necessarily have thought. And of course we have had a number of lateral partners.

“There was a very strong last quarter [April to June]. From memory, we started off relatively quietly and built up, and the last quarter was a real cracker.

“Even for a big firm a big transaction can make a difference. Our work arising from the Victorian bushfires was one of these; that’s a pretty significant piece of litigation."

What will drive overall revenue in 2011-12?

“We are budgeting for revenue growth. We are feeling fairly confident. It is a very unusual economy. I think it is fine, relatively speaking, in Australia. But obviously if you have a bigger exposure to resources, energy and infrastructure then you are going to be better off.

“But the reason we feel confident is we have behind us all of the things we have had to do in terms of integration and rebranding [as a result of the Deacons-Norton Rose merger]. All of that positioning has largely been done – or the sting has been taken out of it, to put it another way. The global integration process is continuing to deliver stronger, cross-border joint activities."